Monday, December 21, 2009

It Is WHat It Is

It is what it is, and we are where we are.

If 3 or 4 years ago, you were a believer and made your moves... out of equities and into metals, Oil, farmland, and bonds... out of debt, and into a low over head lifestyle... learned some new skills, etc... good for you. 99% of the doomers reading my stuff (as well as Mish, Archdruid, LATOC, Sharon Astyk, Dmitri Orlov, Gene Logsdon, Jim Kuntsler, etc...) took ZERO action. ZERO. Why'd they bother to read? Cheap entertainment? I guess they call it "doomer porn" for good reason.

Anyway, where ever you are, that's where you are likely/going to be. So make your adjustments in place.

What little the governments could do, they have done. They put an airbag up in front of the crash, but the unwinding of debt worldwide will continue apace for the next several years, and Oil imports into the Western Industrial nations, particularly the U.S., will continue their decline. Whether the first REAL oil shock hits in 2012 or 2015 (it won't be any later) isn't really that important, is it? (Wanna know why almost ALL forecasts on Oil production and/or imports you find anywhere on the Web usually have a 3 year window as a margin of error? Because the distribution of production, and this is magnified for imports, is distributed on a bell graph, and 3 years worth of data is roughly 100 Billion barrels of Oil... if Hubbert's theory is even remotely correct, that 100 Billion barrels is all the margin of error any model needs.)

Not long ago I though the rate of change would be manageable - now I don't think so. I think my rate of change interpretation was far too anecdotal and too much of my personal experience - and I think ethanol's role, as well as increased domestic production of Crude and NG softened the blow in the U.S.. It follows then that since I think these were a "one off", a one time event, at the conclusion of the event the rate of change will once again take on its prior characteristics.

While inventories of Oil in the West might be very high at this moment... that does NOT change the export capacities of the exporting nations in the future. NOT ONE LITTLE BIT. Prices CAN go lower in the short term, and that event has nothing to do with future capacities.

Oil exports can either flat line, continue their rate of decline, or hit an air pocket over the next 18 months to 3 years. It won't matter, within 3 years I give it a 75% probability that the U.S. is rationing gasoline and heating oil, 90% within 5 years.

The next 5 to 10 years are going to be surreal for Americans, although for those that have already been broken in the first waves of this things likely appear surreal right now.

Unfortunately, you ain't seen nothing yet.

So far, the consequences have ONLY been economic. In the future there will be political consequences in the West, and especially in the U.S., that I cannot begin to fathom (actually I can, but I think Dmitri Orlov has covered this very nicely and I prefer to let the other guy sound shrill).

Here is a link to the Financial Sense News Hour for this week. Skip to the 3rd interview, about 29 minutes into the MP3 download, and listen to Larry Ortega from Logi Management, the hedge fund shop that Jeffrey Brown has associated himself with. He makes an EXCELLENT point that whet we are seeing in the markets and economy are business models that are breaking down as Oil constrains them. He then goes on to point out the likelihood of business models in the food distribution system breaking down. I used to poke fun at the doomers because I always felt there would be enough Oil to run tractors and NG for fertilizer (for several generations)... I HADN'T thought about the business model, capital requirements, energy distribution, etc... of the long range trucking of farm product. That is not a question of ALL or NONE, but a question of enough to support the model. After reflecting on this for the evening, I think he is very correct. I am getting warmer and fuzzier about farmland investment near metro centers east of the Mississippi the more I think about this...

If you have the means, there are opportunities in all of this. If you don't, the best thing you can do is adjust in place and try to enjoy your life. I think back to regular commenter "Kathy" and her take on life in or near the inner cities... very poignant...

More soon.

31 comments:

kathy said...

The 60 Minutes episode last night detailing life in Willmington, Ohio after the loss of 10,000 jobs when DHS left town is a picture of what we can expect in smaller cities. It was one of the more tragic pieces I have ever watched. It was the death of families, communities and dreams. There is too much depression in the general population for them to engage in much crime I think. I too wonder how you can read and know and still not take steps to change your lifestyle and adapt. Sharon Astyk came by a few weeks ago to interview me for her new book, Adapting In Place. That and Independence Days should be on everybody's bookshelf.

bureaucrat said...

The little depression we are now in postponed the energy "splat" for at least 2009 -- there wasn't much to talk about on the supply side (except Jeffers's drop in oil import volumes). On the demand side, due to our little depression, we lost 5 mbpd in oil that was no longer needed by the world this year (much to the total surprise of the Simmonses and Skrebowskis of the world). So for 2009, we were and are awash in oil and natural gas (NG was another supply ramp-up story that wasn't predicted). There was no real need to adjust lifestyles to anything cause nothing really happened, unless you lost your job. 90% of people in the U.S. didn't.

Being one who is obsessed with the long term, I decided to change my life a little anyway. I took comfort in living in Chicago where I can walk or train everywhere. I did the precious metals thing. I starting putting E85 (85% ethanol) in my non-E85 Buick, which 4 years later, still runs! I started trying the backyard gardening thing (anyone can grow potatoes -- fulla nutrition). So, people are reading your stuff, Jeffers, though as you mentioned, you are hardly alone in writing about it (Kunstler was the first boook I read in '06.)

The news for 2009 was, instead, debt. The kind of debt the world hasn't seen since WW2. I was just as guilty as everyone else -- I have a HELOC. :) But the news for 2009 had little to do with the energy problem. And for next year, given the massive amount of oil and NG in storage, I can't see much happening in 2011 either. China short-term is going to implode very soon, and their demand for oil will taper off too.

A Quaker in a Strange Land said...

If I knew exactly when ANYTHING.... I would not need my day job. Actually, I just retired from the brokerage business, so I guess I am semi retired...

Enjoy the next couple of years in Chicago... after that? Good luck!

A Quaker in a Strange Land said...

Hi Kathy:

You were on my mind when I was writing this... I am a big Sharon Astyk fan, and look forward to her book.

I have come to the conclusion that exports are going to throw everything off - and very soon. A couple of years either way won't make a shred of difference.

I get back to the key, at least for me, of it all... To LIFE!

Being a doomer ain't fun. Being debt free and self sufficient to a large extent IS fun. I have always been the guy that enjoyed wine with dinner, never missed desert, and endeavored to make love at least once a day (which explains all the kids I guess), surfed when the waves are up, walked the beach when the surf was not...

I hope not to change that simply because I don't have fuel for my car...

Shamba said...

Just thanks for the info you provide here.

peace to All,

Shamba

P.S. I have changed alot of things in my life due to you and many other doomer-realists. I think we should stop using the doomer label and call it something slightly different since what "doomers" were predicting has become a lot of reality.

Peace to All,
shamba

Stephen B. said...

I got hit very hard by a comment this past weekend, made by three students of mine, "Steve, we like you, but you're so negative."

I had been talking in recent months about all we talk about here in blogs such as yours Greg, and in places like Sharon A's blog, Kunstler's et al too. Client-students ask me what kind of car to get, and I give out advice such as not spending much $$ on a car that most likely you won't even be running in 4 or 5 years, avoiding consumer debt, learn more about local food etc.

You all can imagine how this goes over with teenagers living in a residential treatment center with a heavy accent on urban kids and urban staff (though the treatment center itself is out in the outer suburbs on a 170 acre farm campus.)

I don't mind hearing adults admonish me on being "negative" when I mention gold, having some land, etc., but somehow, hearing it from 15 year olds bothered me. In the immediate moment, we had been in a car going shopping and had just driven by a car dealer whose front lot was empty of inventory and I remarked that it looked like the dealership had closed. (It later occurred to me the inventory had been moved for snow removal as the "big" East Coast Noreaster bore down on us this past weekend.) Then I commented on all the traffic around the stores, asking, "what are these people doing?" (The kids had been around me enough to know what I was really asking was: "are these people crazy, buying all this junk, NOW?") And that precipitated the comment about me being negative.

It really sucks being "in the know" on much of what is to come, but I guess I'd best do a better job of not commenting so much outside of the inner circle such as in these online blogs.

It's really too bad most of these at-risk kids don't have a prayer when their city neighborhoods start falling apart in a few years, living in their subsidized apartments and whatnot with not a clue as to how to feed themselves once the government checks are no longer honored at whatever city food market actually has real food soon. As for the kids I know that don't even have that much of a family to return to - the true orphans at our program, I haven't a clue. I've tried to show them practical ways of making do, raising food, developing practical vocations, but they're ears are as deaf as many of the adults I've been around lately. *Sigh*

Stephen B. said...

The point of my previous post was also to say THANK YOU to all of you for your thoughts and information over the past few years. 'Can't forget that ! Places like this help keep me sane :-)

A Quaker in a Strange Land said...

Shamba:

Perhaps we should, at that!

Still, many of the "doomers" were unhelpful in that many seemed to rooting for disaster, rather than participating in a rational, co-examination of the facts. For the minority that took positive action or were something more than a JAFO (just another F*&%$ing Observer) I would like to tip my hat... to those that actually got in the way... I would like to show them the door.

But this seems to be the way of it in all things, wouldn't you say?

Best wishes on you!

A Quaker in a Strange Land said...

Stephen:

You are probably standing at the very floodgates and are seeing the beginnings of the deluge.

Its a funny old world...

bureaucrat said...

I got published on the Agora "5 Minutes" daily website!! :) ...

"“Trader Bill Jenkins needs to read his federal budget,” admonishes another. “80% of federal dollars goes to five WILDLY popular programs that will NEVER be cut: Social Security, Medicare, Medicaid, interest on the debt and defense. Silly options like gutting the bureaucracy, cutting education and -- my favorite -- all the foreign aid… are pennies compared with the dollars in the five programs listed above.”"

Jacob Gittes said...

Worth a quick look: the food situation.

Anybody have any idea of the accuracy of this story? If it's on target, or even half accurate, things could get interesting sooner rather than later....

bureaucrat said...

HAHAHAHAHAHAHA!!!! In addition to us overflowing in oil and natgas, we are overflowing in almost everything, including corn, wheat, rice and soybeans. Recessions/depressions have a tendency to cut demand for everything. Traders of commodities, who know a lot more about any food situation than I do, are not bidding up any of these prices on the commodities markets. I'm pretty sure my Twinkies will be there on the shelf at Jewel for a long time to come. Watch the commodities ...

http://www.bloomberg.com/markets/commodities/cfutures.html

They'll know something a lot sooner than any doom website.

bureaucrat said...

http://www.bloomberg.com/markets/

commodities/cfutures.html

bureaucrat said...

For historical charts ...

http://futures.tradingcharts.com/

menu.html

Anonymous said...

Everyone can come out know. Bur has given the all clear. Twinkies for all. Oh, buy the way great survival food!

Greg,

Have you considered the unattainded consequences of the rationing?

peace

bureaucrat said...

Rationing of what? Gasoline or food? Rationing of gasoline ain't gonna happen quickly like in the 1970s cause gas stations just aren't staffed that way anymore (nobody there to watch plates.) If you mean rationing of food, what I said above means the free market is not showing any shortages of anything. I know you guys don't trust the government. Instead this is the free market, the one that you depend on for everything! ;)

A Quaker in a Strange Land said...

Bur:

I give it a 90% PROBABILITY OF some type of rationing by the end of 2015, and 75% by the end of 2013.

You are entitled to call me crazy.

I hope you are proved correct!

bureaucrat said...

But rationing of what?

oOOo said...

Greg, I always find interesting your run down of numbers and percentages which go along with your posts, and often check them where possible, but how on earth did you come up with this figure?:
"99% of the doomers reading my stuff took ZERO action."

You of course know how many hits you get but without running a survey or talking to all of the people, both the 99% number and the Zero action number are surely no more than a wild (and most likely inaccurate) guess.

I imagine you meant it more as an example to illustrate a point than an accurate figure (or to get people to speak up), but it somewhat detracts from your usual astute number crunching.

Peace

A Quaker in a Strange Land said...

oOOo:

Of course I did no survey...

Just making the point... more talk than action...

Still, I stand corrected!

Jacob Gittes said...

@Bureaucrat et al.:
The point of the article I linked to is that the USDA is either intentionally or unintentionally misleading the "free" market with information that is not accurate. One hand of the government (USDA) is making wildly optimistic claims for the harvest, while another branch is declaring disaster areas left and right, indicating that the harvest will be lower than previous years.

I am not claiming that the article is accurate, but if it IS accurate, then it spells trouble. If the markets are pricing agricultural commodities based on wrong information, there will be a huge price dislocation when the mistake becomes more widely known.

Again, I'm not claiming the article is accurate, I am asking people here if they have any information on the accuracy.

I don't quite get Bureaucrat's claims/rhetoric: is he claiming that the free market is always right, so we have nothing to worry about? Or is he being ironic?

Furthermore, markets are not rational. I think that has been proven numerous times in history. Just as tulip bulbs can become wildly inflated in price, so can food become wildly undervalued.

Finally, it is the marginal "buys" that set prices. Until the moment that scarcity becomes widely known, prices can be low. The moment a big user of soybeans can't make the buy and starts to panic and raise his bid, the "real" price shoots up.

The idea that the current free market price of something can prove or even predict future scarcity is an article of faith in a soon-to-be discredited church.

I'm not a rigid determinist, but someone needs to point out occasionally that economics is a subset of the social sciences or behaviorial sciences. Human behavior changes rapidly when human beings are faced with survival issues. Even if food prices are at historic lows, a rise in price will still lead to global problems, because the world's population is much bigger, and a huge percentage of that population will not be able to afford the price rise.

If the article is accurate, it is accurate, and the price of rice at Jewel will have little bearing on the final impact.

A Quaker in a Strange Land said...

Pub:

I read the article. I can only say that as a regular Ag commodity trader it is MY belief that the writer mixed in just enough truth to make his outrageous lies and accusations somewhat plausible.

What a f*&^ing jerk.

This is not to say that 2010 or 2011, or 2020 could not be the year... but it won't be for the reasons mentioned.

bureaucrat said...

I have no problem with your view of markets, OOOOOO. However, whether the traders are right or wrong, they determine the price that commodities will be sold at. And for the time being, prices are pretty much flat and going nowhere. While we can't know the future, we can know what a ton of wheat sold for today, and what the traders think wheat is going to do in the future by the direction of the commodity prices.

One only has to look at the price of oil in 2008, and how it hugely collapsed in the fall, to see that prices had little to do with supply and demand for that commodity. It was gross speculation by 42-year-olds like me :) who were trying to make the trade of the century in what they thought was disappearing oil. They ran the price up and withdrew just as quickly. Nevertheless, that run up in price was instrumental in the gasoline pump prices that followed. No such runup can be seen in the corn-wheat-rice-soybean markets in 2009 (though they did run up in 2008).

Yes, it's irrational (full of ups and downs, full of overexcited Wall Street types creating "bubbles".) But it also determines the ultimate price of the food on the shelf. Ain't no clouds on that horizon, for now.

bureaucrat said...

Er, excuse me, I mean Publius :)

kathy said...

Rationing gas is easy. You reset the pumps to take only one kind of credit card, one given out by Uncle Sam and that card is set for a given number of gallons per week. There will be a thriving black market for cards of course and for those willing to pony up big bucks, there will plenty of gas but the average Joe is going to have think before he starts up that engine. The gas situation will be the only thing I will regret about living 15 miles from a city. Rationing food will be done by price (gas could be done the same way). The good stuff will be out of reach.

A Quaker in a Strange Land said...

Kathy:

Excellent point, and the very reason that rationing ALWAYS fails.

Markets abhor a vacuum...

bureaucrat said...

Well, not so excellent point. I'll defer to anyone who is closer to the gasoline retail industry, but correct me if I'm wrong: There are 270,000 gasoline outlets in the U.S., the majority (80-90%)of which are independent businesses (not Shell, Mobil, etc)whose pumps can't exceed $3.99 without an expensive upgrade, and you expect the pumps to tell whether it is an odd day or even day, or even read a card? :)

And you expect the awful Federal government (whom I work for) to suddenly implement a "ration card" program when there is no bureaucratic infrastructure to do so? (please see "Iraq war" for quick implementation success stories) Who is going to determine how many gallons people get? Iran has gasoline rationing and every time they change the amount rationed, there are riots.

I'll be interested to hear how "living on a farm" goes for you separatists ;) if there is an energy/food crisis. Hope you have outdoor lights cause me and my starving friends are gonna come out there and eat all your rutabegas. We'll pay with our black market ration cards. Hahahahhaaha! :)

kathy said...

Come on over. We are well-armed and organized in our small towns. And what is your altenative? Should I sell the farm and get a job? Put my kids in day care? Buy industrial produced food rather than growing and preparing my own? I could get rid of the wood funace and switch to oil. I could buy a hummer and hope for the best. We all make choices. This is mine. I leave this life and this place feet first.

bureaucrat said...

"Well armed" is a bunch of old men with failing eyesight and limited ammunition. :) Everyone who has seen John Wayne movies think they can walk on water. I have nothing against farms. My damn brother used to want to farm (hopefully he'll want to do it again :).) But the only real solutions are cutting the colossal amount of wasted energy & food and NOT continuing to live like Bavarian princes. Please don't think separating to farms is going to help in a real crisis. First farm I'm going to is Jeffers's for sweet potatoes. He can absorb the loss best. :)))))

kathy said...

Maybe if you ask nicely I will spot you some winter squash. I should not have made such a silly comment (about shooting you. I wouldn't unless I really, really had to)but it is wearing to be marginalized for my life style and then hear the same person say will will be there should things get tough.

bureaucrat said...

We are talking about sizeable energy crises and food shortages (which I think are far, far away). Don't tell me you won't shoot me. :) You just might have to. Haha!

Cause I gotta have my Captain Crunch!!!